Ireland's Corporation Tax Roadmap includes a commitment to amend Ireland's transfer pricing regime in Finance Bill 2019. This commitment stems from recommendations made in the Review of Ireland’s Corporation Tax Code by Mr Seamus Coffey.
One of the recommendations in that Review is that consideration be given to extending transfer pricing rules to SMEs, having regard to whether the associated burden of keeping transfer pricing documentation would be proportional to the risks of transfer mispricing occurring.
As part of the process of updating Ireland's transfer pricing rules, my Department recently published Ireland’s Transfer Pricing Rules Feedback Statement to enable consultation with stakeholders on the approach I propose to take to meeting the commitments made in this area.
Being mindful of not imposing an undue administrative burden on SMEs, the Feedback Statement signals a proposed approach towards how transfer pricing rules could be applied to SMEs. That approach proposes that smaller enterprises will not be required to provide any transfer pricing documentation and that medium enterprises will only be required to provide simplified transfer pricing documentation in respect of very material cross border transactions with associated persons. I believe that this would strike an appropriate balance between the risk of mispricing and the compliance burden imposed.
Application of transfer pricing rules to SMEs, but with relaxed documentation requirements, is consistent with the approach adopted in many other OECD countries. Also, of note, where the associated person who is the other party to the transaction is located in a country which has transfer pricing rules, it is likely that there is already a requirement for the group to prepare transfer pricing documentation in relation to the transaction in that other country. Therefore, providing transfer pricing documentation in Ireland may not be a significant burden for many medium enterprises.
The Feedback Statement also proposes that the provisions for SMEs would not be commenced at the same time as the rest of the transfer pricing provisions. The rationale behind this approach is to ensure that SMEs do not face any additional compliance burden next year given other uncertainties faced by business at this time. This will have the added benefit of providing a window to allow SMEs to fully consider and understand how the application of transfer pricing rules could impact them and prepare for that eventuality.
I am advised by Revenue that it is unable to provide exact figures for the number of Irish SMEs that could be impacted by transfer pricing rules. However, Revenue estimate that approximately 1,500 companies from over 50 groups could be brought within the scope of the new rules when they eventually come into effect for SMEs. Revenue advise that it does not have estimated figures available for the number of employees working for SMEs that could potentially come within the scope of transfer pricing rules. Given that it is not intended to commence the extension of transfer pricing rules to SMEs in 2020, there are no immediate impacts on the tax yield as a result.